The US is one of the largest markets in the world for accounts receivable financing with an estimated volume of $120 billion in receivables financed in this structure every year.
Despite the prevalence of invoice financing, however, picking the right company for your factoring needs remains a somewhat challenging proposition, because so much of the industry is comprised of a fragmented mix of privately held companies with a regional or industry focus.
How do you choose one? Let’s figure it out.
Large Banks – The largest players in the factoring market are the receivables finance departments within large banks. The most prominent example of this type of company is CIT. With its 100 year history and a balance sheet in the tens of billions, CIT is easily the leading name in traditional factoring.
Wells Fargo is similar in size, capabilities and market presence. Bank based factors are ideal for large, stable companies with a history of profitability demonstrable through audited financials. These types of companies will be able to go through the type of diligence such banks require and secure a low cost of funding.
Middle Market – The next tier down from these players are factoring companies like ourselves, Coral Capital Solutions, that serve clients that don’t quite make the cut for bank financing either due to size or stage of business (start-ups, turnaround stage companies) but still have several million in revenues and a considerable need for working capital. Non-bank factoring companies like ourselves can often act with greater speed to deliver flexible solutions to such clients.
Small Ticket and Online Factors – There are several hundred small regional factoring companies that serve the needs of their local communities for small ticket financing (less than $250 thousand). The Commercial Finance Association maintains a directory of lenders and finance companies that you could use to find one in your region. In addition, a number of tech start-ups have sprung up in recent years that provide quick access to small loans. The largest among these is OnDeck Capital.
Since the nuances of billing, collections, and debtor creditworthiness vary significantly by industry, a number of factoring firms have developed specializations in various industries.
Garment Industry – The garment trade was one of the earliest users of receivable financing as a way to finance their invoices. It continues to represent a sizeable chunk of the invoices financed in the market. Some of the oldest factoring companies in the country, such as Rosenthal and others based in New York or Los Angeles, primarily finance clients in this industry.
Transportation – The trucking and freight broker industry is another historically active user of factoring. A number of specialty finance companies or banks, such as Interstate Capital and TAB Bank, are active in this space.
Tech, Media, Telecom: Factoring is a more recent addition to the financing arsenal of entrepreneurs in new industries like technology, media and telecom. Coral Capital Solutions is one of the few companies with depth of expertise and coverage in this space. We have taken the best aspects of legacy factoring transactions and are leveraging new technology and industry expertise to help finance fast growing companies technology and similar sectors.